Discounted Properties: The Six Things You Need to Watch Out For

Discounted Properties

When trying to figure out how to invest in property with little money, many new investors look toward discounted properties. However, there are some risks you must keep in mind.

Foreclosure is an ever-present risk for Australian homeowners. Failure to meet your mortgage repayments could result in your lender taking possession of your property. It’s an issue that affects thousands of people every year. In Victoria alone, almost 1,000 people had their homes repossessed between 2014 and 2015.

Foreclosed, or discounted, properties present an opportunity for property investment for beginners. In fact, many make discounted homes their first investment property in Australia.

However, buying a foreclosed home is not always simple. Here are six things you must watch out for when purchasing a discounted property.

Issue #1 – Your Own Finances

When a lender forecloses on a property, they take ownership of it. As a result, you buy discounted properties directly from the previous owner’s lender.

What does this mean for you? For one, you can expect the lender to want to get the transaction over with as quickly as possible. You’ll have to deal with a shorter settlement period, and the lender will want to see that you have your finances in order. Furthermore, having pre-approval on a home loan isn’t always enough. You need to have more concrete evidence that you have the money to spend.

Make sure your finances are in order before trying to buy a discounted investment property in Australia.

Issue #2 –The Quick Settlement

As mentioned, you’ll deal with a quick settlement period when buying a discounted investment property in Australia. This is because the lender needs to get the property into somebody else’s hands. The longer that takes, the more time the lender has to wait before recouping their costs. Depreciation Quote Schedule

Prepare yourself for this ahead of time. Make sure you have a solicitor in place who will prioritise the transaction’s paperwork for you. Furthermore, work closely with your own lender to ensure nothing can go wrong with your mortgage application.

Failure to meet the conditions of the settlement could lead to you paying penalty fees. Suddenly, your discounted property costs more than you expected.

Issue #3 – The Need to Make Repairs

Foreclosures are not pleasant situations. The previous owners will have vacated the property quickly. They will also have been going through some financial difficulties. As a result, maintaining the property would not have been a priority.

Expect to make repairs to several fixtures and fittings. It’s also likely that you’ll have to clean up before you can start using the house as an investment property in Australia. Worst case scenario, you’ll have to renovate extensively.

Factor this into your budgeting before you buy the property. You won’t be able to use your discounted property to generate an income if it’s in a state of disrepair.

Issue #4 – The Effects of Unruly Previous Owners

Those undergoing foreclosure will feel a lot of stress. After all, they’re facing financial issues and the prospect of losing their home.

In some cases, the previous owner may have lashed out against the property itself. There are reports of investors buying discounted properties, only to find extensive damage. You become responsible for fixing this damage as soon as you take ownership of the property.

You can avoid this problem if you arrange a building inspection. Have an inspector ready to go as soon as you make contact with the lender who owns the property. This ensures that you find any deal-breaking issues before the transaction reaches settlement.

Issue #5 – The Location

Depreciation CalculatorBuying a discounted property doesn’t mean you should forget about the location. Checking the property’s location is one of the property investment basics.

Take some time to visit the area, so you can get a feel for the neighbourhood. Also, remember that the pictures you see aren’t fully representative of the property. The seller uses those images to make the property look as attractive as possible.

As a result, you need to visit the property yourself at least once before making your offer. If the location isn’t suitable, no discount is worth the risk.

Issue #6 – Your Research

You may forget to do your research in your rush to buy a discounted property. The faster settlement doesn’t help with this. You have a lot of pressure on your shoulders to get the deal done quickly.

Some investors use this as an excuse to research less thoroughly. Don’t fall into that trap. You need to know if the property has the potential to contribute to your portfolio.

Examine the usual data. Check to see how local property prices have fluctuated over the last few years. Have a plan in place for what you’ll do with the property once you have it. It’s also worth checking tenant demand, assuming you wish to use the property to generate a rental income.

The Final Word

Buying discounted properties could help you to make a lot of money as an investor. However, you shouldn’t go into any deal without checking all the issues.

You also need to consider how you’ll claim deductions on your new property. Washington Brown can help, so contact us today to find out how much you can claim.

Your Guide to Claiming Depreciation on Granny Flats

Many see granny flats as an easy property investment. For beginners, they offer the opportunity to start investing, without spending too much money. As with any investment property, you must remember to claim for the depreciation of your assets.

Tons of people like the idea of buying an investment property. Australia offers plenty of opportunities, but many struggle to get over the initial financial barrier.

You may find yourself asking how to invest in property with little money. A granny flat may be the answer. They cost less than most other types of investment property. Plus, you still get to claim for the depreciation of the property’s assets.

So, what are granny flats, and how can you claim for their depreciation? This article will help you to answer those questions.

What is a Granny Flat?

You can think of a granny flat as a secondary home on your property. They’re usually self-contained extensions that come with a lot of the features you would expect in an apartment.
The difference is that the granny flat is on your land. As a result, you have far more control over it.

Most people build their granny flats behind their properties. After all, the back yard is a perfect space to extend into. The flat itself will usually contain the following:

This makes them ideal for all sorts of tenants. The name “granny flat” should tell you that they’re perfect for elderly tenants. However, that’s not the only use for this type of investment property.

Australia is full of young people who view granny flats as an affordable way of achieving their independence. Your own children may find the idea of moving into a granny flat more appealing than staying at home.

They’re also a cheap way to enter the investment sector. On average, a granny flat costs about $120,000 to build. In return, you could enjoy a yield of up to 15% on the property.

If you have recently purchased or constructed a granny flat, make sure your claiming the deductions you’re entitled to! Request your free quote for a fully comprehensive, ATO-compliant depreciation schedule.

Do I Face Construction Restrictions?

You do, and they depend on the state you build the granny flat in. Each has its own rules with regard to size. For example, a granny flat cannot exceed 60 metres squared in New South Wales. However, you can build up to 90 Depreciation Quote Schedulemetres squared in the Australian Capital Territory.

Exceeding these limitations changes the status of the granny flat. This could have an effect on how you claim tax deductions. Australia has several states, so you need to get informed before you start building.

Claiming Depreciation on Granny Flats

There’s one key question you must ask when buying an investment property: what can I claim? Granny flats are no different. Just because you’ve built the property on your land, doesn’t mean that you can’t claim depreciation.

As a secondary dwelling, a granny flat must produce an income before you can claim depreciation. Assuming that’s the case, you can claim depreciation for capital works. These include the wear and tear the structure undergoes during its lifetime.

You can also claim for plant & equipment depreciation. In a typical granny flat, this means you can claim depreciation for the following assets:

Depreciation CalculatorYou can also claim depreciation on the areas the granny flat shares with your home. For example, you could claim for a pool or a patio, assuming the tenant uses these assets.

As you can see, that covers a lot of ground. In fact, research suggests that you could claim over $5,000 in depreciation on a granny flat for the first year of ownership. This figure increases to almost $24,000 over the first five years. That’s about one-fifth of the value of the average granny flat, in just five years.

The Final Word

As you can see, granny flats offer high yields and plenty of opportunities to claim for depreciation. That’s why they’re considered one of the best options when it comes to property investment for beginners. Manage the flat correctly, and it could generate thousands of dollars in income in a short time.

However, you need help to create a full depreciation schedule. Without the help of a Quantity Surveyor, you may end up failing to claim for the full depreciation of your assets. Contact Washington Brown today to get a quote for a granny flat depreciation schedule.